Assessing the Quality of Bank Boards: Evidence from the Indian Banking Industry

Bhatia, Madhur; Gulati, Rachita

doi:10.1177/0973801020953296

Cited by 4 publications

(7 citation statements)

References 31 publications

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“…However, it signifies either a low percentage of BI on the board or the effective role of board independent members. This is consistent with Bhatia and Gulati [ 84 ], who indicated that the average score of the board index increased by 33% over time, indicating a significant improvement in the board governance practices of Indian banks. This improvement in board practices of Indian banks was mainly due to a significant shift in the sub-dimensions of board structures and board independence.…”

Section: Analysis and Discussionsupporting

confidence: 90%

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The moderation role of board independence change in the relationship between board characteristics, related party transactions, and financial performance

Almaqtari

Farhan²,

Al-Hattami³

et al. 2022

PLoS ONE

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The present study examines the moderation effect of board independence change on the relationship between board characteristics, related party transactions and financial performance of Indian listed banks over 10 years from 2010 to 2019. While board size, independence, diligence, and remuneration were taken to represent board characteristics, all key personnel and subsidiaries’ transactions were considered measures for related party transactions. On the other hand, the financial performance of banks was measured by two accounting-based measures (return on assets and profit after tax) and two market-based measures (earning per share and Tobin Q). The results revealed that board independence change has a significant negative effect on financial performance. Further, the results indicated that board independence change moderates positively and significantly the relationship between related party transactions and financial performance. The findings also showed that board independence change had a moderating effect that significantly and negatively weakens board size and effectiveness, negatively influencing banks’ profitability. Unlike other studies, this study uniquely uses board independence change as a moderator between board characteristics, related party transactions, and several measures of banks’ financial performance. The limited research highlighting this issue, where Indian banks have encountered several challenges in the last few years, has motivated the present study to bridge the existing gaps in the strand literature. Therefore, this research opens useful insights and has beneficial implications for policymakers, bankers, financial analysts, and academicians.

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Section: Analysis and Discussionsupporting

confidence: 90%

“…Bhatia and Gulati [ 84 ] investigated the evolution of board practices in Indian banks through an index that included 14 BC from 2004 to 2017. The study indicated that the average score of the board index increased by 33% over time, indicating a significant improvement in the board governance practices of Indian banks.…”

Section: Literature Reviewmentioning

confidence: 99%

The moderation role of board independence change in the relationship between board characteristics, related party transactions, and financial performance

Almaqtari

Farhan²,

Al-Hattami³

et al. 2022

PLoS ONE

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“…This substantial reduction can partially be explained by an immense drop in PSBs' profitability due to their higher provisioning on banks' delinquent loans compared to their operating profits (RBI, 2018). But this trend in dividend payouts also motivates to explore the role of the board in determining the dividend payouts, as it is noted that board quality has substantially improved in recent years (Bhatia & Gulati, 2020b). Thereby, it becomes imperative to investigate whether the board substitutes or complements the dividend policy in the Indian banking industry and across ownership groups.…”

Section: Dividend Payout Policy In the Indian Banking Industrymentioning

confidence: 99%

“…As far as we know, no study comprehensively examines this relationship between dividends and board quality. Although few researchers have attempted to analyse the link between the board and profitability (Bhatia & Gulati, 2020a, 2020b; Sarkar & Sarkar, 2018), risk‐taking (Agarwal et al, 2015), and bank stability (Gulati, 2021), the literature exhibits an apparent shortage of studies that explicitly assess the role of boards in determining dividend payouts in India. Second, the study investigates the board's role in influencing both propensity and intensity of dividend payouts.…”

Section: Introductionmentioning

confidence: 99%

Are boards ‘substitute’ or ‘complement’ dividend payout? Econometric evidence for Indian banks

Bhatia

Gulati

2022

Economic Notes

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This study econometrically tests the ‘substitution’ versus ‘outcome’ hypotheses by examining the impact of board governance on the dividend payout policy in the Indian banking industry. The analysis is confined to the period from 2005 to 2018. The results reveal a significant positive influence of overall board quality on the magnitude of payouts, supporting the ‘outcome hypothesis’. At the disaggregated level, independent directors, female directors, chief executive officer duality, and board meetings significantly influence the dividend policy of Indian banks. Our further investigation of the board‐dividend nexus at the ownership level shows that this complement relation is only visible in private banks (PBs). While the ‘substitution hypothesis’ holds in public sector banks (PSBs). The results suggest that good governed PBs use dividends as a complementary measure of monitoring mechanism. In contrast, governed boards of PSBs take conservative financial decisions and declare a low dividend. The findings are robust at disaggregate level, corroborating our main findings and additional analyses, including propensity score matching depicting that our conclusions are not beset by endogeneity or selection bias.

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“…The approach emphasises the role and power of executives over the board to significantly influence the pay-setting procedure. Thus, effective board governance may directly influence the executives’ pay or indirectly, as the board is noted to be a significant determinant of the performance of banks (see, for instance, Gebrayes and Edeit, 2022; Bhatia and Gulati, 2020; Mamatzakis and Bermpei, 2015).…”

Section: Introductionmentioning

confidence: 99%

Co-integrating relation between pay, board governance and performance: evidence from Indian banking

Bhatia

Gulati

2023

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Purpose The purpose of the paper is to explore the long-run impact of board governance and bank performance on executive remuneration. More specifically, the study addresses two objectives. First, the authors investigate the long-run relationship between pay and performance hold for the Indian banking industry. Second, the authors explore the moderating role of the board in explaining the relationship between executive pay and performance. Design/methodology/approach The study uses multivariate panel co-integration approaches, i.e. fully modified and dynamic ordinary least square, to explain the co-integrating relationship between executive pay, governance and performance of Indian banks. The analysis is conducted for the period from 2005 to 2018. Findings The results of co-integration tests reveal a long-run relationship between executive pay, board governance and bank performance. The long-run estimates produce evidence in favour of the dynamic agency theory, suggesting that the implications of asymmetric information can be mitigated by associating the current executive pay with the bank performance in the previous periods. The finding of this study reveals that improvements in the board quality serve as a monitoring tool to constrain excessive pay and moderate the executives’ pay. Furthermore, the interaction of performance and board governance negatively impacts pay, supporting a substitution approach. It implies that setting optimal pay packages for executives necessitates enhanced and efficient board governance practices. Practical implications The study recommends significant policy implications for regulators and the board of directors that executive pay significantly responds to the bank’s performance and good board governance practices in the long run. Originality/value This paper provides novel evidence of long-run pay-performance-governance relation using a panel co-integration approach.

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Assessing the Quality of Bank Boards: Evidence from the Indian Banking Industry

Cited by 4 publications

References 31 publications

The moderation role of board independence change in the relationship between board characteristics, related party transactions, and financial performance

The moderation role of board independence change in the relationship between board characteristics, related party transactions, and financial performance

Are boards ‘substitute’ or ‘complement’ dividend payout? Econometric evidence for Indian banks

Co-integrating relation between pay, board governance and performance: evidence from Indian banking

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